After 18 years, MDOT ‘still learning’ troubled oversight program

At center, Curtis Bleech, a Michigan Department of Transportation pavement operations engineer, talks to the Lansing State Journal about the department's warranty program . Bleech is flanked at left by Greg Johnson, MDOT chief operating officer, and at right by Brenda O’Brien, engineer of construction field services.(Photo11: Dave Wasinger/Lansing State Journal)

The Michigan Department of Transportation says 13% of warrantied roads jobs have required corrective action. But documented weaknesses in MDOT’s oversight beg the questions: How many needed fixes have been missed? And what might be wrong on the 55% to 65% of MDOT jobs that aren’t warrantied?

Many lawmakers are fuming over those questions as voters are asked May 5 to take on $1.2 billion a year in new roads taxes and expand the troubled warranty program to local roads.

Many of MDOT’s legislative overseers are increasingly skeptical of officials saying they’re “still learning” the best way to manage warranties, 18 years after the program launched and after being warned at least three times by state auditors that the program was ineffective. Federal reviews also have found shortcomings, such as a 2009 criticism that MDOT allowed contractors to inspect some of their own work.

“I’m seeing some shoddy work out there that’s not ever followed up on,” said state Rep. Triston Cole, a trucker and a freshman Republican who serves on the House roads committee. “I just find it very hard to believe there’s a good excuse for that.”

Warranty fixes are usually minor and a small part of big jobs. MDOT officials and contractors said warranties raise expectations on contractors. They also said road work, susceptible to traffic volume and Michigan’s tough and unpredictable weather, shouldn’t be held to the same standard as products built in climate-controlled factories.

Yet, a State Journal review of government records, court documents and news reports found some of the highest-paid MDOT vendors oversaw the most projects which failed to live up to expectations. And those contractors have blemished pasts, settling in and out of court for negligence, lying to the federal government and, in one instance, to get out of a racketeering case.

MDOT vets contractors through its bidder prequalification program, which looks mostly at whether firms have the expertise and financial wherewithal to perform the work, and by checking bidders against a federal list of banned contractors. But federal auditors have criticized that list as often as the Michigan Auditor General faulted MDOT’s warranty program. And former state and federal roads officials said transportation departments can be pressured by politicians and contractors’ high-priced lawyers.

Though contractors pay for fixes on warrantied jobs, MDOT couldn’t say whether the warranties actually saved taxpayers money. Contractors buy bonds to guarantee their warrantied work and roll that cost into their bids. But, because that cost is proprietary information, MDOT officials can’t say how much more expensive warranty contracts are.

MDOT also couldn’t say how many contractors had defaulted on their warranties by failing to fix their work. Spokesman Jeff Cranson said in an email to the State Journal that, “as part of efforts to improve the process, staff members are working on putting together such a list.”

‘We tell folks be aware’

The State Journal identified seven firms that each oversaw at least 10 road projects across Michigan requiring at least one corrective action — often, multiple warranties required multiple fixes on each project. Six of those firms were among MDOT’s highest-paid vendors over the last four years, according to state records.

That includes MDOT’s top-paid vendor, the Shelby Township-based Dan’s Excavating, which has earned nearly $750 million since fall 2010 and was the primary contractor on 21 projects that needed fixing. An official there refused to comment for this story.

Each of those six top-paid contractors has marks on its record.

Goshen, Ind.-based Rieth-Riley Construction Co., for example, has earned $293 million in MDOT business since fall 2010 and was the primary contractor on 21 projects which needed fixing. In 2006, the company signed a $625,000 settlement with the Indiana Attorney General to get out of a racketeering case without admitting guilt. In July 2013, it also lost a $2.5 million negligence lawsuit brought by the family of a motorcyclist who was paralyzed in 2005 after crashing in a construction zone on U.S. 127 in Ingham County. The contractor was faulted for not properly marking the construction zone.

Commerce Township’s C.A. Hull Inc., which oversaw 27 jobs that required corrective action, lost a similar multimillion-dollar settlement for improper signage in 2005 in Macomb County after a subcontractor lost both legs below the knee after being hit by a vehicle in a construction zone.

Dan’s, Ajax Paving Industries Inc., Michigan Paving & Materials Co., and Cadillac Asphalt each ran at least 10 jobs requiring fixes and each also reached multimillion-dollar settlements with the U.S. Justice Department over allegations they misrepresented their use of minority-owned businesses on federally funded projects.

Ajax Vice President Christine Poe said the settlement resulted from differing “interpretations of specifications.”

Contractors reached by the State Journal continued to dispute the allegations against them and said they’ve had few problems on hundreds of road projects spread over many years.

Problems “are such a small percentage of the work we do,” said Chad Loney, Rieth-Riley’s regional vice president for Michigan. “Rieth-Riley stands behind its work 100%, whether there’s a warranty document on file or not.”

MDOT “is aware when those issues happen,” said Greg Johnson, the agency’s chief operating officer. “We talk to the Federal Highway Administration. We tell our folks to be aware of this issue, to look out for these types of activities on our projects.”

Still, Johnson stood behind MDOT contractors and noted, accurately, that none of the firms are on the federal government’s list of barred contractors.

But the U.S. Department of Transportation’s Office of Inspector General repeatedly has criticized that program for ineffectiveness, writing in October that the federal roads agency “continues to provide untimely and inaccurate reporting” on banned contractors.

‘Very difficult to prove’

Roads agencies face an uphill battle when taking on contractors, said John D’Angelo, a former FHWA official who now advises on road projects in multiple states through his Washington, D.C.-based consultancy.

While “it’s not something that’s an everyday occurrence,” officials can face pressure from high-priced lawyers and from politicians who come to contractors’ defense, he said.

State records show executives from the seven contractors with the most corrective actions have given a combined $357,448 to political action committees and Michigan politicians of both parties.

MITA and contractors have given nearly $58,000 to politicians who serve on relevant oversight committees.

MDOT officials said political contributions have nothing to do with whether a contractor gets MDOT business. Cranson said no contractor has ever been kept off MDOT’s blacklist because of political pressure.

Loney, of Rieth-Riley, said contractors give to “do whatever we can to support our industry and to support jobs.”

But agencies face other hurdles, D’Angelo said. For one, debarment typically happens only for proven criminal activity or malfeasance directly related to the work outlined in government contracts, he said.

Plus, road agencies can’t just decide to stop giving business to a contractor. They are bound by laws and policies requiring they go with the lowest qualified bidder — a system established decades ago to prevent fraud.

“It’s very, very difficult to prove that a contractor should not be allowed to continue to work under the system we have,” D’Angelo said. But changing the standards “would take a lot more effort on the government’s part, which the government really doesn’t have the time or energy or resources right now to do.”

‘Hazardous to the public’

In summer 2009, a state roads crew discovered a $1.3 million surface seal on about 12 miles of M-79 in Barry and Eaton counties was deteriorating just one year into a three-year warranty.

MDOT scheduled an emergency inspection, and outside evaluators warned the agency the road surface might not survive another winter without becoming “hazardous to the motoring public.”

MDOT records indicate “one small raveling portion was repaired,” but new deterioration on other sections of the roadway — worse than before — was found during the regularly scheduled inspection two years later. Again, inspectors warned MDOT that winter maintenance would take its toll.

This time, it took another two years — two years beyond the warranty’s expiration — for the problem to get fixed.

That’s the kind of anecdote that has many lawmakers fuming, their ire raised in February when state auditors released their third report since 2006 criticizing MDOT for failing to monitor or enforce warranties in a timely manner.

“Don’t tell me you need more money when you’re not managing the money you have today,” said state Rep. Joseph Graves, an Argentine Township Republican on the House Oversight & Ethics Committee.

Graves and other lawmakers have met with MDOT and officials from the governor’s office and were promised a better response from MDOT than in the past.

In 2010, Valparaiso, Ind.-based Icarus Industrial Painting & Contracting, now called Civil Coatings & Construction, performed two warrantied coating jobs on multiple bridges along I-69 and I-96 in Greater Lansing.

Inspectors later found places where Icarus had not laid enough paint, had damaged the paint with its equipment, and painted over debris.

MDOT tried and failed to bring Icarus in to fix its work in 2012 and 2013.

But it wasn’t until October 2014 that the state Attorney General’s Office sent Icarus a letter saying it defaulted on its warranty.

Cranson, the MDOT spokesman, and John Tsahas, project manager for the company, said the work is scheduled to happen this spring.

‘Supposed to be tough’

The Legislature launched the road warranty program in 1997 in part to ensure contractor accountability after an early retirement initiative drained MDOT of many inspectors. By fall 2014, 3,339 warranties had been issued — exponentially more than any other state — and 430 warrantied jobs required corrective action, MDOT records show.

About 52% of the failures were for bridge coating, which protects the structures from rust and corrosion, and the remainder were about evenly split between required fixes on preventative maintenance jobs and pavement work.

Contractors almost always accept responsibility for the fixes — only five of the 430 corrective actions had to go to a formal dispute resolution process.

Both MDOT officials and contractors said there’s no one reason warrantied work fails, but they and Gov. Rick Snyder said a big part of the problem is a years-long underinvestment in infrastructure.

Contractors are being held responsible for putting Band-Aids on roads that really need a total overhaul.

Contractors often balance the risk of performing work in inopportune weather conditions, which could cost them when they have to come back to perform fixes, or waiting out the weather and facing the possibility of fines for missing deadlines.

“We’re a human worker-driven business, and we’re out there in the elements all the time — we’re in the rain, the snow, the salt, the sleets,” said Mike Malloure, president of C.A. Hull.

“The warranties that MDOT puts out there, they’re tough. They’re supposed to be tough. They’re supposed to demand a high quality, and 90% of the time we’re hitting it.”

Warranties, corrective actions

The majority of required fixes to warrantied road work across Michigan was for bridge painting.

All warranties

Corrective actions

Number

Percent

Number

Percent

Bridge

492

14.7%

223

51.9%

Capital

Preventative Maintenance

2,065

61.8%

100

23.3%

Pavement

763

22.9%

107

24.9%

Not indicated

19

0.6%

0

0.0%

Total

3,339

100.0%

430

100.0%

Source: Michigan Department of Transportation

Contractors requiring corrective action

Of the 291 warrantied contracts on which corrective action was required statewide, the State Journal was able to identify the contractor for 234 contracts — information on older contracts was unavailable. Of those, seven contractors oversaw 10 or more contracts that required fixes. Some contracts include multiple warranties and multiple corrective actions.

To complete these stories, the State Journal reviewed and analyzed hundreds of pages of documents and records provided by the Michigan Department of Transportation and the Michigan Auditor General and dozens of other state and federal records, court documents and news reports available online. The paper interviewed numerous current and former roads officials, lawmakers and contractors. MDOT provided all records at no cost to the newspaper, and made numerous officials available for a lengthy interview with the LSJ.

Steven R. Reed is the LSJ’s lead investigative reporter, and Justin A. Hinkley is the paper’s state government/investigative reporter.